Square is a payment processing platform that provides all that small businesses need to thrive in multi-channel selling. It combines in-person and online payment processing solutions in a ready-to-use package, allowing organizations to accept customers’ credit card payments.

Its ease of use, convenience, and reliability appeal to the needs of many businesses, but the platform also has a major drawback—Square fraud.

Forbes Advisor conducted a payment processing survey and found two key details:

1. Nearly 50% of respondents confirm that they use Square for payment processing
2. 33% of small business owners in the survey have had to deal with credit card fraud 

As scammers keep finding new ways to defraud payment platform users, it’s important for every business that operates with Square to learn how to protect their funds from elaborate scams. In this article, you’ll learn how to recognize Square fraud and what to do if it happens to you.

Different Types of Square Scams

Square fraud mainly happens in the form of credit card fraud known as “card-not-present (CNP)” payment. In this kind of scam, the buyer doesn’t use a physical credit card to initiate the transaction—instead, they use a credit card number. 

Square credit card fraud may occur in different formats, including the following: 

1. Stolen card fraud
2. Refund fraud
3. Overpayment fraud
4. Late dispute fraud

Stolen Card Fraud

This is a type of fraud where the scammer steals a physical credit card or uses a card skimmer to capture the information illegally and then uses it to make purchases.

After the merchant has shipped the purchased items, thinking the payment is genuine, the original cardholder realizes their card has been stolen and files for a chargeback. 

This way, the scammer gets away with the items they paid for with the stolen credit card, and the merchant loses both the payment and the goods.

Refund Fraud

Non-profits or donation-based organizations often fall victim to this type of fraud. In this case, the fraudster makes a substantial donation to a company or pays a business using a stolen card. 

They send more than the required amount and ask the organization to refund the excess to an alternative payment method that’s usually difficult to recover funds from (like Western Union or bank transfer).

If the organization processes the refund, it stands to lose the money when the original card owner disputes the charge. 

Overpayment Fraud

Overpayment fraud is a type of credit card scam that often includes a third party. The way it works is that a scammer contacts a merchant, asking to pay for an item only if they accept an overpayment to cover the cost of shipping with a delivery company.

For example, the scammer may offer to pay for some clothing items if the seller will ship them through a suggested delivery service. The scammer will offer extra money to cover shipping fees and a tip for the merchant’s troubles.

Unknown to the merchant, the money for the goods and shipping comes from a stolen credit card. The delivery company is also an accomplice in the scam and will receive the shipping fee from the merchant on the scammer’s behalf.

Once the merchant agrees and sends over the goods and the shipping fee, both the scammer and the accomplice delivery company disappear. Eventually, the actual card owner files a dispute for the unauthorized transactions on their credit card, including the excess money sent to the third party.

By this time, the scammer is long gone with the money they deceitfully claimed, and the merchant bears the loss of the value of the “sold” items, the additional funds, and the shipped goods. 

Late Dispute Fraud

Also known as “friendly fraud,” this scam occurs when a legitimate cardholder buys something and then disputes the transaction at a later date. This may happen for a few reasons, including:

• A mistaken dispute where the buyer forgets or doesn’t recognize a transaction they previously made
• An attempt to shoplift digitally by disputing a purchase so that they receive the items they bought and also the refund of the purchase
• A plot to bypass your refund policy by filing a claim directly with their card provider instead of coming to an agreement with you

Not all buyer disputes are made with fraudulent intent, which is why it’s important to properly look into this type of scam. The credit card issuer’s investigation may reveal the true intent of the claim.

Other Types of Square Fraud 

Although credit card fraud is common on Square, there are other types of fraud on the platform that could occur without a credit card. These include: 

• Phishing scams—These types of scams occur when a scammer tries to obtain your personal financial information via email, phone call, or text message. They may impersonate people you’re familiar with, such as friends and family, or Square support representatives to persuade you to give them money or your information. They may also prompt you to click on a malicious website URL so they can infiltrate your device 
• Transaction splitting—Scammers may ask you to split or charge an order to multiple cards in a bid to spread the payment across many stolen cards and avoid exceeding the credit limit on a single card

How Square Keeps You Safe

Square actively monitors transactions on its network to spot and review suspicious activity. When the platform detects unusual behavior on your account, it may send you an email or SMS notification. 

Here’s what the process looks like: 

1. Square sends you an email or SMS alert asking you not to ship the order or accept payments from the customer because they’re under investigation
2. The fraud team compares the order with fraud patterns they’ve previously identified
3. The review process typically takes one business day, after which Square will email you to let you know the outcome or request additional information

Note: If you receive an SMS alert from Square, you’ll be required to contact the Square team via phone ASAP so they can proceed with the review.

How To Report a Square Scam

If you suspect you’ve fallen victim to Square fraud, take proactive steps to secure your account. Immediately contact Square Support for assistance, detailing what occurred. If you encounter other types of suspicious activity on Square, here’s how to report fraud: 

Suspicious Activity	How To Report It
Unrecognized transactions	If you notice transactions you didn’t authorize, contact Square immediately. You can also reach the platform’s support team at 1 (855) 700-6000
Phishing email	If you encounter a phishing email scam, forward the email to [email protected] and also follow the Federal Trade Commission’s directives. The designated teams will investigate and handle it as needed
Account information updates	If you receive notifications that your account information has changed or you notice some unusual account activity, follow the accompanying self-verification instructions and expect feedback within 48 hours
Account takeover	In a situation where you’re unable to log into your account, contact Square. Provide the email and phone number associated with your account in the request form

It’s not enough to report fraudulent activities—you should also actively protect your business from further harm. See the tips below for help.

Tips To Protect Your Business Account From Scammers

To keep your business scam-safe, follow these steps: 

1. Set up a unique password that’s hard to crack. Make sure not to repeat passwords you’ve previously used for other accounts because they make you more vulnerable to breaches 
2. Add a supplementary layer of security, such as a two-step verification that keeps your account safe from unauthorized activity
3. Consider saving business cash reserves in a more secure storage platform like FortKnox. This option might prove essential if a scammer somehow breaches your Square account or gains access to your financial information because all your financial accounts and the funds within will be at risk